Four impact areas of COVID-19 on digitization of banks in India

Banking services in India are classified under the essential services list. Banking and financial institutions were under immense pressure to ensure business-as-usual amidst the lockdown and health crisis.

Banking operations such as cash deposits, withdrawals, clearing of cheques and other traditional teller services had to be executed by maintaining a safe distance of at-least a meter. Social media was abuzz with a bank employee’s effort to handle cheques with tongs and sanitize them with a steam iron.

The operational and technical challenges for both the customers and employees highlighted a lacuna and the general lack of agility in our banking systems when faced with an emergency situation. The immediate learnings from the current COVID-19 situation will add the much-needed rigor towards digitizing and optimizing the bank’s backend operations. This will eliminate the dependency on manual entries, person led reviews i.e. paper and employee intervention within banks.

When the COVID-19 situation is past us, it is expected that the Indian Banks will shift gears to move away from traditional forms of banking. The traditional banks will stand the opportunity to leapfrog adopting cutting edge banking technologies and blaze the digital transformation trail. Currently, 27 of Indian public sector (PSU) banks are on a path of consolidation to 10 large banks. It is an opportune time for the PSU’s to explore better technology integration and customer adoption.

Other Indian banks (both public and private) which are already online with some core banking functions will focus on a complete transition by digitization of all their functions, processes and systems. Legacy Indian banks and financial institutions will also look at collaboration with the new entrants and fintechs. Such necessity-driven partnerships will drive innovation and jointly reap the benefits of the large customer base of the banks and the new technologies of the fintechs.

The COVID-19 situation will not only accelerate the adoption of technology, but will renew focus on the following four key areas of banking:

Embracing neo technologies – In the aftermath of the pandemic and economic uncertainties, emerging technologies will play a key role in speeding up transactions and reducing costs for banks. Indian banking sector has already realized the role of technology in achieving the reach and scale.

I foresee higher rates of adoption of microservice architecture by dropping vertically integrated stacks, APIs, containerization, cloud computing, AI and blockchain. These technologies will play critical roles in digital transformation of Banks and Financial Institutions and re-imagine digital delivery of services.

Channels of digitization – As per the 2017 global findex report by the World Bank, India is home to the world’s second largest unbanked population at 190 million adults without access to a bank account. With increased penetration of mobile and Internet, the primary focus would to accelerate technology enabled digital financial inclusion.

The business focus would also be to create a gradual shift in customer preference from visiting bank branches to using digital channels. Banks will enable its customers to interact over multiple automated and digital channels to offer the optimal channel mix. Banks will consider important factors such as demographics, access to internet, last mile connectivity, customer banking behavior patterns etc. to enable effective adoption by the Indian banking consumers.

Security, privacy and customer trust – According to RBI, for the financial year 2017-18, India’s banking sector witnessed a spike in cyber frauds and pegged the losses at $ 13.7 million. With increased use of cashless and digital economy, it will be imperative for the banks to implement secure frameworks and systems. Some of the obvious cyber risks include financial frauds, money laundering, data loss, identity thefts and privacy breaches.

Banks need to take stringent steps to identify both internal and external system vulnerabilities. They should be technically strengthened by rigorous KYC, strong customer authentication (SCA), financial grade APIs, firewalls, smart networks, etc., for secure and seamless transactions. Robust banking solutions and cyber security initiatives help safeguard against malicious attacks.

Policy and compliance – The focus should be on increased digital payment infrastructure, especially in rural India, with an intention to create a financial ecosystem for the unbanked and underbanked population of our country.

From a security and privacy standpoint, India is already on its path to introduce the Personal Data Protection bill (PDP) on the lines of GDPR in the EU. This bill protects personal information of consumers including sensitive financial information. It would be in the best interest to implement stringent penalties on erring entities found in violation of the bill.

India’s banking revolution can be further catalyzed by the introduction of the open banking directive on the lines of the UK and the EU.

The COVID-19 impact on the global and Indian financial systems will be phenomenal and multifold. It is important to take the long view and prioritize accordingly. For Indian banks particularly, resilience, driven by digital agility, is a way to achieve relevance and success on the other side of COVID-19.

-- Ms Samudyata Kadur Shivaram, Associate VP for Digital, Maveric Systems.